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Bi-partisan support for amendments to the RET scheme

The Federal Government and the Opposition have recently been engaged in extensive negotiations following two separate reviews of the Renewable Energy Target (RET) scheme.

As a result of these negotiations, the parties have agreed:

to reduce the Large-scale Renewable Energy Target (LRET) from 41,000 gigawatt hours (GWh) to 33,000 GWh of electricity by 2020; and

to scrap the requirement for the RET scheme to be reviewed every two years.

However, they have been unable to reach agreement as to whether the burning of native wood waste for biomass power should count towards the RET.

We expect that the Federal Government will introduce legislation to amend the RET scheme shortly and will seek cross-bench support to include native wood burning in the RET.

BACKGROUND

The RET scheme, which is designed to ensure that 20% of Australia’s electricity supply will come from renewable energy sources by 2020, is split into 2 parts to encourage investment in both large and small scale renewable energy systems:

the LRET which aims to boost large-scale renewable power, such as wind and solar farms, to deliver 41,000 GWh of electricity by 2020; and

the Small-scale Renewable Energy Scheme which supports the installation of small-scale technology, such as household solar panels and solar hot water systems.

There is currently a statutory requirement for the RET scheme to be reviewed by the Climate Change Authority (CCA) every two years, however in February 2014 the Federal Government announced an independent review of the RET scheme by an Expert Panel chaired by Mr Dick Warburton (Warburton Review).

The Warburton Review recommended that the RET scheme be scaled back by either:

closing the LRET to new entrants effectively freezing the current 41,000 GWh target at 16,000 GWh; or

linking the target to electricity demand which it is expected could result in a ‘real 20%’ target of approximately 26,000 GWh by 2020.

Whilst the Federal Government considered these recommendations, the CCA undertook its bi-annual legislative review of the RET scheme which concluded, amongst other things, that the LRET of 41,000 GWh should be maintained contrary to the findings of the Warburton Review.

Following these reviews, in late 2014 the Federal Government and the Opposition commenced negotiations regarding the RET scheme and last week they reached an ‘in principle’ agreement to reduce the LRET from 41,000 GWh to 33,000 GWh by 2020.

A reduction in the LRET has been anticipated as the 41,000 GWh target will likely represent more than 20% of Australia’s power sources by 2020 due to falling electricity demand. The 33,000 GWh target is slightly below the 33,500 GWh target recommended by the Clean Energy Council, however it is significantly greater than that recommended by the Warburton Review and represents a figure generally acceptable to industry.

RET REVIEWS

The Federal Government’s determination to retain bi-annual reviews of the RET scheme by the CCA appeared to be the key obstacle in the negotiations, as the Opposition indicated that it would not agree to any deal in which the RET scheme continued to be reviewed every two years as this would undermine investor confidence and create uncertainty in the industry.

However, an agreement has now been reached to scrap bi-annual reviews of the RET scheme. Instead, the Clean Energy Regulator will publish an annual statement detailing:

progress towards the target;

any impact on electricity prices; and

whether the RET scheme is at risk of default.

NATIVE WOOD WASTE

Following amendments to the RET scheme in 2011, the burning of wood waste sourced from native vegetation can no longer be used for the generation of Renewable Energy Certificates and therefore falls outside the RET scheme. The Federal Government now proposes to expand the definition of ‘wood waste’ to include native wood burning as an accredited energy source that may contribute to the RET scheme. This would reverse the amendments made by the then Labour Government in 2011.

The Opposition opposes this change on the basis that it may provide an incentive for the burning of native wood which could lead to unintended outcomes for biodiversity and the destruction of intact carbon stores.

As the parties have been unable to reach an agreement on native wood waste, we expect that the Federal Government will seek cross-bench support for the inclusion of native wood burning in the RET scheme.

STATE RETS

As a result of the ongoing uncertainty regarding the RET scheme, a number of States (specifically Queensland, South Australia, Victoria and the ACT) have affirmed their commitment to reduce emissions and promote renewable energy.

Under the RET legislation, the States are currently banned from introducing their own renewable energy targets. However, the above States intend to lobby the Federal Government to remove this ban to enable them to introduce state-based renewable energy targets as follows:

Queensland – 50% RET by 2030;

South Australia – 50% RET by 2025;

Victoria – 20% RET by 2020.

The ACT has already implemented a ‘reverse auction’ scheme which will deliver 33% of the territory’s electricity needs from renewable energy sources by 2017.

The Federal Government has yet to indicate whether it would agree to amend the RET legislation to allow the States to introduce their own targets.

CLEAN ENERGY FINANCE CORPORATION

Following the release of the Federal Budget 2015/16 on 12 May 2015, it is clear that the Federal Government remains committed to abolishing the Clean Energy Finance Corporation (CEFC). The CEFC, which funds renewable energy developments and projects, has been allocated no funding for 2015/16.

It remains to be seen whether the Federal Government will re-introduce legislation to abolish the CEFC after its two previous attempts were blocked by the Senate.

NEXT STEPS

We expect that the Federal Government will introduce draft legislation to the Senate to amend the RET scheme to:

reduce the LRET from 41,000 GWh to 33,000 GWh of electricity by 2020;

scrap the requirement for the RET scheme to be reviewed every two years and instead require the Clean Energy Regulator to publish an annual statement detailing progress towards the target, any impact on electricity prices and whether the scheme is at risk of default; and

include native wood waste burning in the RET scheme.

Whilst amendments (a) and (b) have bi-partisan support, the Federal Government will require cross-bench support to include native wood waste in the RET scheme.